PM Daily Market Commentary - 3/26/2014

Gold closed down -6.00 to 1305.40 on heavy volume; silver was off -0.24 to 19.74 on moderate volume. Gold tried to rally in Asia, failed, and sank to a new low of 1299 before rallying modestly into the close. Gold seem to find support at the confluence of the 200 MA, the 50 MA and at the round number of 1300. Silver behaved similarly to gold, but looked somewhat weaker, having no support in sight.

The dollar traded in a narrow range today, closing up +0.03 at 80.12. For the past four days, the dollar has been tracking sideways.

It was another distribution day for GDX, down -3.84% on extremely heavy volume; GDXJ was down -5.34% also on extremely heavy volume. The intraday chart showed that GDX started dropping at market open and sold off the whole day, closing at the lows - another very bearish day. GDX has now lost 50% of its gains from this year's rally in only two weeks. The ratio GDX:$GOLD was hit hard, since gold itself dropped only 0.5%. This ratio is now quite bearish, more so than the ratio GDXJ:GDX. $GOLD:$SILVER ratio continues to make new highs, which is also bearish.

Today's behavior in the mining shares reminds me of last year, when GDX sold off hard every time gold dropped even modestly. Psychologically this harsh two week move down has probably flushed out quite a number of new longs who perhaps got the idea over the last few months the gold and the mining shares were easy money, and could only go up.

After all this downside action, the mining shares have moved into an oversold state. As a result, I expect a rally in the mining shares to come relatively soon. GDX has some support at 23. If gold can avoid closing below 1300, I expect the mining shares will rally, although I do not know how long that rally will last. If the shares can't rally when gold holds, that's quite bearish and likely means another leg down is in the offing.

Price and volume will be our clues. What I would like to see is a sharp move down in the morning, followed by a rebound that erases the losses of the day forming one of those hammer candles, preferably with high-volume. What I don't want to see is a very lame rally on low volume. That would signal yet another leg down is likely.

Copper could not hang on to its gains from yesterday and dropped -0.04 to 2.96, although it is still trending slowly higher. The commodity index moved higher, closing up +0.07%.

AEP at the FT thinks Mr Putin blundered in taking Crimea. Here's the first paragraphs of his analysis - full article at the link below:

Russia's Vladimir Putin has committed a grave strategic blunder by tearing up the international rule book without a green light from China. Any hope of recruiting Beijing as an ally to blunt Western sanctions looks doomed, and with it the Kremlin's chances of a painless victory, or any worthwhile victory at all.

Mr Putin was careful to thank China's Politburo for its alleged support in his victory speech on Crimea. Foreign minister Sergei Lavrov has been claiming with his usual elasticity that “Russia and China have coinciding views on the situation in Ukraine.”

This is of course a desperate lie. China did not stand behind Russia in the UN Security Council vote on Crimea, as it had over Syria. It pointedly abstained. Its foreign ministry stated that “China always sticks to the principle of non-interference in any country’s internal affairs and respects the independence, sovereignty, and territorial integrity of Ukraine.”

We don't know exactly what China's Xi Jinping told President Barack Obama at The Hague this week it clearly had nothing in common with the deranged assertions of the Kremlin. The US deputy national security adviser Ben Rhodes appeared delighted by the talks, claiming afterwards that Russia could no longer count on backing from its "traditional ally".

If so, Mr Putin is snookered. He cannot hope to escape financial suffocation by US regulatory muscle, should he send troops into Eastern Ukraine or even if he tries to stir up chaos in the Russian-speaking Donbass by means of agents provocateurs.